Friday, March 8, 2013

German IP points at bumpy industrial recovery

German industrial production remained unchanged in January, from an upwardly revised +0.6% MoM in December. On the year, industrial production is down by 1.3%. While production in the manufacturing sector dropped by 0.2% MoM, driven by a sharp decline in capital goods, production in the construction sector more than offset the December decline, increasing by 3% MoM.

The German industry has stabilised after the decline since late-summer. However, it is still not a sharp and healthy rebound. Looking ahead, production expectations and the Ifo index have increased to the highest levels since April last year and the industrial safety net of filling order books and inventory reduction has strengthened gradually since last summer. However, yesterday’s new order data illustrated that the way out of the contraction will not follow a straight line. The negative side-effects from the crisis in most neighbouring countries have become a speed limit to any industrial recovery. Finally, in the short term, there is even a risk that the harsh winter weather could delay the industrial rebound a bit further.

Soft data for the German economy has been more than encouraging for already several months. Now, the first batch of hard data for the start of the year sends mixed signals. While the solid labour market and a sharp increase in retail sales in January already confirmed the growth-supportive role of consumption, the strengthening of industrial activity remains a very gradual and choppy one. At least some kind of rebalancing of the German economy.

All in all, the German economy looks still set to leave the contraction of the fourth quarter behind, returning to growth in first quarter of 2013. However, it currently rather looks like a cosy ride on a country road than frantic ride on a German highway.